Insolvency pressure is rising, but many risks are fixable

Insolvencies are a useful barometer for the pressure businesses are under, and recent figures show that pressure is not going away. In England and Wales, there were 2,238 registered company insolvencies in May 2025, up 8% on April 2025 and 15% higher than May 2024. The Insolvency Service also notes that insolvencies in the first five months of 2025 were at a similar level to 2023, which saw a 30-year high annual total.

The economic climate matters, but many businesses run into trouble because internal finance issues quietly build over time. The good news is that most are fixable with the right habits, systems, and support.

Below are 10 common accounting and finance challenges we see in small and mid-sized businesses, and what to do about each one.

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10 Accounting challenges that can put a business at risk (and how to fix them)

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1. Delays in receiving payments

A business can look profitable on paper and still struggle to pay the bills. That’s the cash flow trap. You do the work, raise the invoice, then spend weeks (or months) chasing payment, but still not seeing the funds materialise.

Why it matters
Cash flow pressure forces reactive decisions, late payments to suppliers, extra admin, and unnecessary stress.

What to do

• Automate invoice reminders. If cash flow is tight for your customer, it’s usually whoever shouts the loudest that gets paid first. Weekly reminders are often enough to stay top of mind without the admin burden.
• Renegotiate supplier terms to create breathing space. If your sales invoices are on 30-day terms but your supplier payments are on 14 days, you’ll be in constant cash flow difficulty with no buffer.
• Forecast cash weekly, not only monthly. There will always be unexpected bills, but monitoring weekly makes them easier to manage.

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2. Mixing personal and business expenses

“Where is all the money going?” is a common question when receipts go missing and expenses start getting scattered. It’s a common mistake to mix personal and business spending, especially when transactions are not reconciled promptly.

Why it matters
Poor expense tracking reduces clarity, creates tax inefficiencies, and increases the likelihood of compliance issues.

What to do

• Keep personal and business spending separate. The key question is whether the spend is wholly and exclusively for the business. If in doubt, it’s worth double-checking with your accountant.
• Use cloud expense tools. Upload receipts quickly and reconcile bank accounts frequently, so missing receipts are caught before they’re accidentally binned.
• Encourage real-time expense reporting. If staff submit a year’s worth of receipts at once, you risk making decisions on out-of-date numbers.
• Consider expense cards for regular claimants. Helpful for spending controls and visibility.

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3. Late invoicing

Late invoicing is one of the simplest causes of cash flow problems. If the invoice does not go out, cash will not come in. Even a short delay can push you into the client’s next payment cycle.

Why it matters
It can disrupt cash flow and increase the likelihood of late payment.

What to do

• Automate invoicing workflows. Once the work is completed, use a cloud-based system like Xero to raise and send the invoice immediately, or set up recurring invoices for retainers.
• Offer an early payment incentive. In some cases, a small discount for payment within a set timeframe can encourage faster payment.
• Use direct debit for regular clients. Tools like GoCardless can integrate with cloud systems to collect on due dates automatically.

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4. Compliance mistakes

Compliance errors are rarely about intent. They usually happen because deadlines are fragmented across systems, responsibilities are unclear, or bookkeeping is being done too late.

Why it matters
Missed or incorrect submissions can lead to penalties, interest, avoidable enquiries, and a loss of confidence in the numbers.

What to do

• Create a single compliance calendar covering key obligations (Companies House, Corporation Tax, VAT, payroll RTI, pensions).
• Assign an internal owner for each deadline, even if your accountant files on your behalf.
• Keep bookkeeping current. Many “compliance issues” are really “late records” issues.
• Schedule a regular finance admin slot. A consistent weekly rhythm is usually more effective than periodic catch-up.

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5. Overlooking budgeting

A budget is not just a finance exercise. It is a decision-making tool. A survey conducted by Clutch involving 335 small businesses found that 50% did not have a documented budget.

Why it matters
Without a budget, spending shifts from proactive to reactive. You cannot manage properly what you do not measure.

What to do

• Build a simple baseline budget: revenue, gross margin, overheads, payroll, tax, and a cash buffer.
• Use a rolling budget. Update it monthly or quarterly using actual results, then forecast forward.
• Review budget vs actual regularly. A budget created at the start of the financial year and then ignored is not very useful.

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6. Manual accounting processes

A simple principle often holds: manual accounting will cost more than software ever will, once you account for time, rework, and mistakes.

Why it matters
Manual accounting often creates duplicated work, inconsistent versions, and error-prone data entry.

What to do

• Move core bookkeeping to cloud accounting software. For most SMEs, tools like Xero or QuickBooks are a strong starting point.
• Automate repetitive tasks such as bank feeds, rules, recurring invoices, and approvals.
• Keep spreadsheets for analysis, not bookkeeping. The system should be your source of truth.

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7. Lack of financial KPIs

Many businesses use the P&L to determine whether it’s been a profitable month, but it’s also worth introducing Key Performance Indicators (KPIs) to understand how the business is really performing.

Why it matters
Revenue and profit do not always explain what is happening operationally, or why cash is tightening.

What to do

• Choose a small set of KPIs relevant to your business, for example:
  • Gross margin
  • Accounts receivable days
  • Cash conversion cycle
  • Customer acquisition cost and lifetime value (where relevant)
• Review KPIs alongside the P&L. If sales were strong but cash is down, receivable days are often the first place to look.

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8. Not planning for tax

Tax planning doesn’t just relate to personal finances. It’s also important to plan for your company’s tax to avoid large, unexpected bills. Corporation Tax is due 9 months and 1 day after your accounting period ends, which is typically the day after your year-end accounts are due.

Why it matters
An unexpected large tax payment can drain working capital and force short-term decisions.

What to do

• Build tax into your cash flow forecast. If you’re projecting profits of £100K per month, set aside £25K for Corporation Tax (the percentage will depend on the overall bill and will be between 19% and 25%).
• Physically separate the money. Move funds into a dedicated savings account so it is there when needed.
• Make sure you’re claiming the deductions and reliefs you’re entitled to. For example, Annual Investment Allowance for assets, or R&D relief where applicable.

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9. Poor inventory accounting

If your business is inventory-heavy, stock accuracy is not a technical detail. It directly impacts profit reporting and cash.

Why it matters
Miscounted or overvalued stock distorts cost of goods sold, misstates profit, and locks cash into unsold goods.

What to do

• Perform stock counts regularly and reconcile differences quickly.
• Review stock quality. Identify damaged or obsolete items and act early (discounting can be better than dead stock).
• Align purchasing with sales patterns to avoid tying up cash in stock that does not match demand cycles.

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10. Lack of strategic finance advice

Many business owners view accountants purely as compliance providers. Compliance matters, but strong finance support should also help you plan ahead.

Why it matters
Without forward-looking advice, businesses can miss opportunities, fail to spot risks early, and make decisions without robust data.

What to do

• Ask for strategy sessions. If you currently have compliance meetings with your accountant, consider adding strategy sessions too.
• Ask questions such as:
  • What should we be considering for the tax year ahead?
  • Are there legislative changes that could impact us?
  • What does our cash position look like three months from now?
  • Which KPIs should we track, and why?
• Use your numbers to plan for growth, not just to report on the past.

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Conclusion

The common thread across all 10 challenges is simple: businesses rarely fail because of one big mistake. It’s usually a handful of small issues that compound, often unnoticed, until cash gets tight and decisions become reactive.

The aim isn’t perfection, it’s consistency: keeping records current, staying close to cash, and reviewing the right numbers in a regular rhythm.

These are not complicated changes, but they make a meaningful difference. If you’d like help identifying where the pressure points are in your business, Folio can support with both day-to-day accounting and the strategic finance input that helps you stay ahead.

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